Financial Sites Are Said to Seek Merger

By FELICITY BARRINGER

Published: February 17, 2000

TheStreet.com, whose fledgling stock soared and then dipped sharply during the last six months, is in preliminary merger discussions with MarketWatch.com, a leading rival in the hotly contested business of delivering financial news online, a person close to the talks said yesterday.

TheStreet said yesterday that it had hired the investment banking firm, Wasserstein Perella, to help the company find a buyer or a partner.

The company's executives would not expand on a one-paragraph announcement that said TheStreet had hired the investment firm ''to explore the wide variety of strategic partnerships and other transactions in order to help grow the company.''

The announcement made no mention of MarketWatch or any other possible partner, but speculation on Wall Street immediately focused on companies like America Online, the News Corporation and The New York Times Company.

The News Corporation has a 1.6 percent equity stake in TheStreet, and the Times Company has a 6.2 percent stake. The New Corporation's Fox News channel shows a program featuring TheStreet's leading commentators; The New York Times newspaper and TheStreet jointly manage a group of journalists who cover breaking financial news for their Web sites.

The competition among financial Web sites has sometimes been direct and at other times glancing, analysts say.

Some sites, like Fool.com, are largely aimed at small investors, and others, including TheStreet.com, seek a more sophisticated audience -- a combination of professionals and well-informed private investors.

But in the competition for audience, TheStreet, which has been a subscription-based site for almost its entire existence, has been passed by other general news sites.

According to the Web measurement firm Media Matrix, in December TheStreet had 908,000 different visitors, compared with 1.2 million for CNNfn.com, a unit of Time Warner, and 3.2 million for MarketWatch, which leads the group.

People close to both TheStreet and MarketWatch draw sharp journalistic and business distinctions between the two.

Journalistically, TheStreet has prided itself on deep, quick reporting and sharp analysis. The skeptical, knowing tone and sharp opinions of the leading columnists, James Cramer and Herb Greenberg, have won the site a cadre of followers on Wall Street -- and another cadre of investors and professionals who loathe them.

On the business side, TheStreet, like The Wall Street Journal, chose to use a subscription model for its business, ensuring two revenue streams -- advertising and subscription -- but also limiting the size of its audience. While some of its information was free, those wishing to read Mr. Greenberg's column, for instance, had to subscribe.

Last month, TheStreet said it was amending this strategy and providing most of its news free, while developing premium sister sites like RealMoney.com and TheStreetPros.com that would offer rich analysis and would charge for it. RealMoney would offer the commentaries of Mr. Cramer, who is also a hedge-fund manager and a co-founder of the Web site, to subscribers who would pay $20 a month, or $200 annually.

By comparison, MarketWatch has focused on plain-vanilla breaking news and strategies and partnership relationships that would increase the audience for its free offerings.

CBS has a 38 percent stake in MarketWatch, as does the Data Broadcasting Company, which was its original backer. A part of the CBS investment, however, is in in-kind advertising, and the site's Web address is frequently mentioned on CBS programs like ''The CBS Evening News With Dan Rather.''

MarketWatch's audience increased sharply in each of the last two months after a deal with America Online brought thousands of new users to its site.

''Life is fairly simple -- it's about getting users'' and selling the audience to advertisers, said Lawrence Marcus, an analyst with Deutsche Bank BT Alex. Brown.

''The beauty of being No. 1 is you get a disproportionate share of the opportunity'' for deals that can expand a site's reach, he said.

Mr. Marcus's firm was an underwriter for MarketWatch's public offering of its shares last year.

A comparison of the fourth-quarter earnings reports from the two companies showed that MarketWatch, which has a market capitalization of $588.8 million, had net revenues of $10 million in the fourth quarter and a loss of $8.9 million, excluding amortization.

TheStreet, with a market capitalization of $412.3 million, had net revenues of $5.1 million and a loss of $9.1 million, excluding noncash compensation charges.

As an analysis by Fool.com -- a competitor of both sites -- recently noted, ''TheStreet is running a more expensive operation than MarketWatch.com to produce just half the revenues.''

Larry Kramer, the president and chief executive of MarketWatch, would not comment yesterday on any possible negotiations, and Thomas J. Clarke, the chief executive of TheStreet, did not return a message left with TheStreet's public relations spokesman.

The spokesman for the News Corporation also did not return calls seeking comment on whether his company would have an interest in a partnership with TheStreet.

A spokeswoman for The New York Times Company said the company never commented on potential investments.

Shares of TheStreet closed at $16.8125 yesterday, up 81.25 cents. Shares of MarketWatch closed at $42.50, down $1.